25 million people have been lifted out of poverty in only a decade. Bucking the trends in most OECD countries, inequality has been coming down, albeit from high levels, as the incomes of the poorest 10% have increased at three times the rate of the richest 10% since 2003.

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How’s Life? describes the essential ingredients that shape people’s well-being in OECD and partner countries. It includes a wide variety of statistics, capturing both material well-being (such as income, jobs and housing) and the broader quality of people’s lives (such as their health, education, work-life balance, environment, social connections, civic engagement, subjective well-being and safety). The report documents the latest evidence on well-being, as well as changes over time, and the distribution of well-being outcomes among different groups of the population.

This third edition of How’s Life? develops our understanding of well-being in new ways. There is a special focus on child well-being, which finds that not all children are getting a good start in life, and those living in less affluent families face more risks to their well-being. The report introduces new measures to capture some of the natural, human, social and economic resources that play a role in supporting well-being over time. A chapter on volunteering suggests that volunteer work can create a virtuous circle: doing good makes people feel good, and brings a variety of other well-being benefits to both volunteers and to society at large. Finally, the report looks at inequalities in well-being across different regions within countries, demonstrating that where people live can shape their opportunities for living well.

How’s Life? is part of the OECD Better Life Initiative, which features a series of publications on measuring well-being, as well as the Better Life Index, an interactive website that aims to involve citizens in the debate about what a better life means to them.

Preferential regimes continue to be a key pressure area. Current concerns are primarily about preferential regimes which can be used for artificial profit shifting and about a lack of transparency in connection with certain rulings. The report sets out an agreed methodology to assess whether there is substantial activity. In the context of IP regimes such as patent boxes, agreement was reached on the “nexus approach” which uses expenditures as a proxy for substantial activity and ensures that taxpayers can only benefit from IP regimes where they engaged in research and development and incurred actual expenditures on such activities. The same principle can also be applied to other preferential regimes so that such regimes are found to require substantial activity where the taxpayer undertook the core income generating activities. In the area of transparency, a framework has been agreed for the compulsory spontaneous exchange of information on rulings that could give rise to BEPS concerns in the absence of such exchange. The results of the application of the existing factors applied by the FHTP, and the elaborated substantial activity and transparency factors, to a number of preferential regimes are included in this report.

The mobility and fungibility of money makes it possible for multinational groups to achieve favourable tax results by adjusting the amount of debt in a group entity. The recommended approach ensures that an entity’s net interest deductions are directly linked to its level of economic activity, based on taxable earnings before deducting net interest expense, depreciation and amortisation (EBITDA). This approach includes three parts: a fixed ratio rule based on a benchmark net interest/EBITDA ratio; a group ratio rule which allows an entity to deduct more interest expense in certain circumstances based on the position of its worldwide group; and targeted rules to address specific risks. A country may choose not to introduce the group ratio rule, but in this case it should apply the fixed ratio rule to multinational and domestic groups without improper discrimination.

There are hundreds of empirical studies finding evidence of tax-motivated profit shifting, using different data sources and estimation strategies. While measuring the scope of BEPS is challenging given its complexity and existing data limitations, a number of recent studies suggest that BEPS is responsible for significant global corporate income tax (CIT) revenue losses. This report assesses currently available data and concludes that significant limitations severely constrain economic analyses of the scale and economic impact of BEPS and improved data and methodologies are required. Noting these data limitations, a dashboard of six BEPS indicators has been constructed, using different data sources and assessing different BEPS channels. These indicators provide evidence that BEPS exists and has been increasing over time. New empirical analysis estimates that the scale of global CIT revenue losses could be between USD 100 and 240 billion annually at 2014 levels. The report also presents a toolkit to assist countries evaluate the fiscal effects of BEPS countermeasures. The research also finds significant non-fiscal economic distortions arising from BEPS. The report concludes by making recommendations regarding data and monitoring tools to improve the analysis of BEPS in the future.

This report includes changes to the OECD Model Tax Convention to prevent treaty abuse. It first addresses treaty shopping through alternative provisions that form part of a minimum standard that all countries participating in the BEPS Project have agreed to implement. It also includes specific treaty rules to address other forms of treaty abuse and ensures that tax treaties do not inadvertently prevent the application of domestic anti-abuse rules. The report finally includes changes to the OECD Model Tax Convention that clarify that tax treaties are not intended to create opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping) and that identify the tax policy considerations that countries should consider before deciding to enter into a tax treaty with another country.

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This report sets out recommendations for domestic rules to neutralise the effect of hybrid mismatch arrangements and includes changes to the OECD Model Tax Convention to address such arrangements. Once translated into domestic law, the recommendations in Part 1 of the report will neutralise the effect of cross-border hybrid mismatch arrangements that produce multiple deductions for a single expense or a deduction in one jurisdiction with no corresponding taxation in the other jurisdiction. Part I of the report sets out recommendations for rules to address hybrid mismatches in respect of payments made under a hybrid financial instrument or payments made to or by a hybrid entity. It also recommends rules to address indirect mismatches that arise when the effects of a hybrid mismatch arrangement are imported into a third jurisdiction. The recommendations are supported by a commentary and examples to illustrate how they should apply. Part 2 of the report sets out proposed changes to the Model Convention that will ensure the benefits of tax treaties are only granted to hybrid entities (including dual resident entities) in appropriate cases. Part 2 also considers the interaction between the OECD Model Convention and the domestic law recommendations in Part 1.

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The report contains revisions to the OECD Transfer Pricing Guidelines to align transfer pricing outcomes with value creation. The revised guidance focuses on the following key areas: transfer pricing issues relating to transactions involving intangibles; contractual arrangements, including the contractual allocation of risks and corresponding profits, which are not supported by the activities actually carried out; the level of return to funding provided by a capital-rich MNE group member, where that return does not correspond to the level of activity undertaken by the funding company; and other high-risk areas. The report also sets out follow-up work to be carried out on the transactional profit split method which will lead to detailed guidance on the ways in which this method can appropriately be applied to further align transfer pricing outcomes with value creation.